CGL Pollution Exclusion Applies to Dust and Diesel Fumes

Facts and Allegations

A cement company was sued by a group of homeowners alleging that, during construction of a nearby airport, the company generated large quantities of dust and exhaust fumes. The plaintiffs in the personal injury case claimed that the dust contaminated the homeowners' drinking water and cisterns and caused breathing disorders, which led to other "unspecified physical, emotional, and psychological damage." They also alleged that emissions from construction vehicles were causing similar problems.

The cement company tendered the plaintiffs' complaint to Reliance Insurance Company, its CGL insurer, to defend. The insurer informed the insured that it questioned whether there was coverage under the policy for any of plaintiffs' claims because the policy excluded coverage for injuries resulting from pollution caused by the cement company. It agreed, however, to defend the insured pursuant to a reservation of rights letter in which it asserted the right to withdraw from the suit at any future date if it was determined that the homeowners' injuries were outside the scope of the policy. The insured, concerned that the claim might not be covered, commenced a declaratory judgment action to determine whether the insurer was obligated to defend and indemnify it under the policy.

Policy Overview

The CGL policy provides for coverage for "bodily injury or property damage" caused by an occurrence, which is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Although this provision is fairly broad, the policy lists a set of exclusions to narrow the scope of coverage. The exclusion applicable to this case bars coverage for injuries that "would not have occurred in whole or in part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of pollutants." Pollutants are defined under the policy as "any solid, liquid, gaseous, or thermal irritant or contaminant, including, but not limited to, smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste."

Effect of the Pollution Exclusion

The trial court found that the pollution exclusion removed coverage for the plaintiffs' injuries and that the insured had no reasonable expectation of coverage for such harms because they were beyond the scope of coverage. Summary judgment for the insurer was entered by the trial court. On appeal, the insured argued that it reasonably believed its policy would provide coverage for construction-related harms such as those caused by dust and engine fumes, and it urged the court to extend coverage under the doctrine of reasonable expectations. It further argued that the policy exclusion was meant to exclude coverage for environmental pollution akin to dumping of hazardous waste, and that "the exclusion is ambiguous, not because a particular term of in the policy is susceptible to multiple interpretations, but because the exclusion, if read literally, would remove coverage for a large number of harms that do not implicate the environmental catastrophes that the exclusion was supposedly intended to address."

The appellate court noted that, although it was true that courts in some states have limited the reach of the pollution exclusion to environmental catastrophes, while other courts have not given it that limitation, this did not demonstrate that the exclusion is ambiguous. The court stated:

The trouble with [insured's] approach is that, instead of asking whether the contractual language is clear and then applying the exclusion's unambiguous meaning, it looks at the effects of the exclusion and concludes that the language must be unclear because it produces in [insured's] view, bad results. That is an unduly intrusive way to evaluate the relationship between two sophisticated commercial entities bargaining at arm's length.

In rendering its decision in favor of the insurer, the court focused on the portion of the exclusion referencing the "release" of any "solid . . . irritant or contaminant," including "fumes" and "gaseous contaminants." Due to the inclusion of such language, the court determined that the harms alleged by the homeowners were outside the policy because "the policy provides no insurance coverage when bodily injury or property damage results from airborne solids and fumes such as the dust clouds and engine exhaust complained of . . . ."

Insureds Only Get the Coverage Bargained for in the Policy

The court acknowledged the result of its decision might seem harsh but that it is not the court's responsibility to provide a result different from that for which the parties bargained for in their policy. As explained by the court:

If it seems harsh to leave [insured] without coverage, we reiterate that both [insured] and [insurer] are sophisticated businesses capable of bargaining to protect their interests. Indeed, it is no stretch to consider that injuries caused by clouds of dust and diesel fumes generated constantly over a period of several months represent the type of harm from which [insurer] sought to shield itself when drafting the pollution exclusion. [Insured] accepted the insurance policy with full knowledge of the exclusion's broad language. It is not inequitable to hold [insured] to the terms of its bargain, even if, in retrospect, it wishes that it had negotiated for greater insurance coverage.

For these reasons, the court concluded that the pollution exclusion applied to the injuries described in the underlying complaint and that the policy provided no coverage for the alleged harms.

Conclusion

This case is noteworthy because it makes such a point of rejecting the argument raised by the insured that it would be inequitable to apply the pollution exclusion to the facts in this case. In rejecting that argument, the court rejected case precedent that had been cited from case decisions in California, Illinois, Kentucky, and New Jersey that have previously found the breadth of the exclusion must have been intended to apply more narrowly or only to environmental catastrophes. The court in this current case applied what it deemed to be the plain meaning of the broad exclusion without concern about what might seem like harsh results.

One might reasonably argue that a cement company would logically expect that its work with cement and the ingredients of cement could result in a pollution event, and might conclude that purchasing a specific contractors pollution liability (CPL) policy would be the surest way to protect against claims based on a pollution event, whether it be cement getting into a waterway, dust getting into drinking wells, or fumes causing harm.